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GAOUnited States Government Accountability Office

Report to Congressional Requesters

BIOFUELS

Potential Effects andChallenges ofRequired Increases inProduction and Use

August 2009

GAO-09-446


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What GAO Found

United States Government Accountability Of

Why GAO Did This Study

HighlightsAccountability Integrity Reliability

August 2009

BIOFUELS

Potential Effects and Challenges of RequiredIncreases in Production and Use

Highlights of GAO-09-446, a report tocongressional requesters

In December 2007, the Congressexpanded the renewable fuelstandard (RFS), which requiresrising use of ethanol and otherbiofuels, from 9 billion gallons in2008 to 36 billion gallons in 2022.To meet the RFS, the Departmentsof Agriculture (USDA) and Energy(DOE) are developing advancedbiofuels that use cellulosicfeedstocks, such as corn stover andswitchgrass. The EnvironmentalProtection Agency (EPA)administers the RFS.

This report examines, among otherthings, (1) the effects of increasedbiofuels production on U.S.agriculture, environment, andgreenhouse gas emissions; (2)federal support for domesticbiofuels production; and (3) keychallenges in meeting the RFS.GAO extensively reviewedscientific studies, interviewedexperts and agency officials, and

visited five DOE and USDAlaboratories.

What GAO Recommends

GAO suggests that the Congressconsider requiring EPA to developa strategy to assess lifecycleenvironmental effects of increasedbiofuels production and whetherrevisions are needed to the VEETC.

GAO also recommends that EPA,DOE, and USDA develop acoordinated approach foraddressing uncertainties inlifecycle greenhouse gas analysisand give priority to R&D thataddresses future blend wall issues.DOE, USDA, and EPA generallyagreed with the recommendations.

To meet the RFS, domestic biofuels production must increase significantly,with uncertain effects for agriculture and the environment. For agriculture,many experts said that biofuels production has contributed to crop priceincreases as well as increases in prices of livestock and poultry feed and, to lesser extent, food. They believe that this trend may continue as the RFSexpands. For the environment, many experts believe that increased biofuelsproduction could impair water qualityby increasing fertilizer runoff and soerosionand also reduce water availability, degrade air and soil quality, andadversely affect wildlife habitat; however, the extent of these effects is

uncertain and could be mitigated by such factors as improved crop yields,feedstock selection, use of conservation techniques, and improvements inbiorefinery processing. Except for lifecycle greenhouse gas emissions, EPA currently not required by statute to assess environmental effects to determinwhat biofuels are eligible for inclusion in the RFS. Many researchers told GAthere is general agreement on the approach for measuring the direct effects biofuels production on lifecycle greenhouse gas emissions but disagreemenabout how to estimate the indirect effects on global land use change, whichEPA is required to assess in determining RFS compliance. In particular,researchers disagree about what nonagricultural lands will be converted tosustain world food production to replace land used to grow biofuels crops.

The Volumetric Ethanol Excise Tax Credit (VEETC), a 45-cent per gallonfederal tax credit, was established to support the domestic ethanol industryUnless crude oil prices rise significantly, the VEETC is not expected tostimulate ethanol consumption beyond the level the RFS specifies this year.The VEETC also may no longer be needed to stimulate conventional cornethanol production because the domestic industry has matured, its processiis well understood, and its capacity is already near the effective RFS limit of15 billion gallons per year for conventional ethanol. A separate $1.01 tax creis available for producing advanced cellulosic biofuels.

The nation faces several key challenges in expanding biofuels production toachieve the RFSs 36-billion-gallon requirement in 2022. For example, farmeface risks in transitioning to cellulosic biofuels production and are uncertain

whether growing switchgrass will eventually be profitable. USDAs newBiomass Crop Assistance Program may help mitigate these risks by providinpayments to farmers through multi-year contracts. In addition, U.S. ethanoluse is approaching the so-called blend wallthe amount of ethanol that mosU.S. vehicles can use, given EPAs 10 percent limit on the ethanol content ingasoline. Research has been initiated on the long-term effects of using 15percent or 20 percent ethanol blends, but expanding the use of 85 percentethanol blends will require substantial new investment because ethanol is tocorrosive for the petroleum distribution infrastructure and most vehicles.Alternatively, further R&D on biorefinery processing technologies might leato price-competitive biofuels that are compatible with the existing petroleumdistribution and storage infrastructure and the current fleet of U.S. vehicles.

View GAO-09-446 or key components.For more information, contact Patricia Daltonat (202) 512-3841 or [email protected].
http://www.gao.gov/cgi-bin/getrpt?GAO-09-446http://www.gao.gov/products/GAO-09-446http://www.gao.gov/products/GAO-09-446mailto:[email protected]://www.gao.gov/cgi-bin/getrpt?GAO-09-446mailto:[email protected]://www.gao.gov/products/GAO-09-446


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Page i GAO-09-446

Contents

Letter 1

Executive Summary 2

Purpose 2Background 4Principal Findings 5Conclusions 11Matters for Congressional Consideration 12Recommendations for Executive Action 12 Agency Comments and GAOs Evaluation

Chapter 1 Introduction 17

Corn Starch Ethanol Is the Primary U.S. Biofuel 20Soybean Oil Is the Major U.S. Biodiesel Feedstock 21The Federal Government Has Used Tax Expenditures, the RFS,

and an Ethanol Import Tariff to Stimulate Domestic BiofuelsProduction 24

DOE and USDA Support Biofuels R&D and Commercialization 27Objectives, Scope, and Methodology 30

Chapter 2 Biofuels Production Has Had Mixed Effects on U.S.

Agriculture, but the Effects of Expanded Production

Are Less Certain 35

Increasing Corn Ethanol Production Has Had Mixed Effects onLand Use, Crop Selection, and Livestock Production 35

Growth in Ethanol Production Has Generally Provided a Boost toRural Economies 40

Higher Corn PricesDriven in Part by Increased EthanolProductionHave Likely Been a Factor in Recent Food PriceIncreases 43

The Effects of Expanded Biofuels Production on Agriculture AreUncertain but Could Be Significant 45

Some USDA Programs Could Support the Transition to CellulosicEnergy Crop Production for Biofuels 48

Biofuels


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Chapter 3 Increased Biofuels Production Could Have a Variety of

Environmental Effects, but the Magnitude of These

Effects Is Largely Unknown 51

Cultivation of Corn for Biofuel Has a Variety of EnvironmentalEffects, but a Shift to Cellulosic Feedstocks Could Reduce TheseEffects 52

The Process of Converting Feedstocks into Biofuels HasEnvironmental Consequences, but the Effects Vary 65

Storage and Use of Certain Ethanol Blends May Result in FurtherEnvironmental Effects that Have Not Yet Been Measured 73

Focus on Sustainability Will Be Important in EvaluatingEnvironmental Implications of Increased Biofuel Production 77

Conclusions 78Matter for Congressional Consideration 79 Agency Comments and Our Evaluation

Chapter 4 Researchers Disagree on How to Account for Indirect

Land-Use Changes in Estimating the Lifecycle

Greenhouse Gas Effects of Biofuels Production 80

Estimates of the Lifecycle Greenhouse Gas Emissions of Biofuels

Have Significantly Differed 81Assumptions about Agricultural and Energy Inputs, Co-Products,and Land-Use Changes Determine Research Results 83

Shortcomings in Forecasting Models and Data Make It Difficult toDetermine Lifecycle Greenhouse Gas Emissions 88

Conclusions 91Recommendation for Executive Action 92 Agency Comments and Our Evaluation

Chapter 5 Federal Tax Expenditures, the RFS, and an Ethanol

Tariff Have Primarily Supported Conventional Corn

Starch Ethanol 93

The VEETC Provides a Tax Credit to Companies that BlendEthanol with Gasoline 94

RFS Biofuels Volume Requirements Rise Annually 96The United States Imposes a Tariff on Ethanol Imports 98The RFS and the VEETC Can Be Duplicative for Total Ethanol

Consumption 99

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The Relationship between Crude Oil and Corn Prices Will PrimarilyDetermine Whether the RFS Is Binding 101

Some Recent Studies Have Proposed that the VEETC Be Revised 102Other Federal Biofuels Tax Expenditures Support Biodiesel and

Cellulosic Biofuels Producers 103Conclusions 105Matter for Congressional Consideration 105

Chapter 6 Federal Biofuels R&D Primarily Supports Developing

Cellulosic Biofuels 106

Federal Biofuels R&D Programs Are Growing and Focus onCellulosic Ethanol 106

The Congress Has Authorized and Appropriated AdditionalFunding for Biofuels R&D 110

Experts Identified R&D Areas for Improving Cellulosic BiofuelsProduction 111

Chapter 7 Significant Challenges Must Be Overcome to Meet

the RFSs Increasing Volumes of Biofuels 112

Farmers and Other Suppliers Face the Challenge of Identifying andDeveloping Productive and Profitable Cellulosic Feedstocks 113

Cellulosic Feedstocks Pose Unique Logistical Challenges forBiorefineries 116

High Costs and the Limitations of Current Conversion TechnologyAre Key Challenges to Making Cellulosic Biofuels Competitivewith Other Fuels 118

Blending Limits and Transportation Pose Challenges to ExpandedEthanol Consumption 120

The Biodiesel Industry Faces Feedstock and Market Challenges 124Conclusions 125Recommendations for Executive Action 125 Agency Comments

Appendix I Key Studies on the Agricultural and Related Effects

of Biofuels and on the Transition to Advanced

Biofuel Feedstock Production 127

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Appendix II Economic Studies Examining the Impacts of Increased

Biofuel Production on U.S. Food and Agricultural

Markets 133

Appendix III Scientific Studies on the Environmental Impacts of

Biofuels 146

Appendix IV Key Studies on the Lifecycle Greenhouse Gas Effects

of Biofuels 153

Appendix V Recent Studies on Federal Supports for Biofuels 158

Appendix VI Economic Linkages of the Corn Ethanol Industry to

Food and Agricultural Markets 159

Appendix VII Summary of Researchers Assumptions and

Conclusions about Lifecycle Greenhouse Gas

Emissions of Biofuels Production 163

Appendix VIII Comments from the Department of Agriculture 166

Appendix IX Comments from the Department of Energy 170

Appendix X Comments from the Environmental Protection

Agency 172

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Appendix XI GAO Contacts and Staff Acknowledgments 175

Tables

Table 1: Average Water Consumed in Corn Ethanol Production inPrimary Producing Regions in the United States, in Gallonsof Water/Gallon of Denatured Ethanol Produced 53

Table 2: Projected Growth in Corn Acreages Related to IncreasedCorn Ethanol Production of 15 Billion Gallons per Year 54

Table 3: Sample of Agricultural Conservation Practices Available toReduce the Environmental Effects of FeedstockCultivation for Biofuels 60

Table 4: Potential Air Pollutants Associated with EthanolRefineries and Their Related Health and EnvironmentalEffects 70

Table 5: Criteria Pollutants and Related Emissions from Stationaryand Mobile Sources, 1990 and 2007 (thousands of shorttons) 77

Table 6: Federal Agencies Obligations for Biofuels R&D, FiscalYears 2005-2008 106

Table 7: Integrated Biorefinery Projects Receiving DOE Funding 107

Table 8: Major Economic Studies of Agricultural Market Impacts ofBiofuels Production 135

Figures

Figure 1: Greenhouse Gas Emissions Associated with the BiofuelsProduction Process 19

Figure 2: Corn Used for Ethanol by Market Year, 1980-2008 36Figure 3: U.S. Acres Planted to Corn, Soybeans, Wheat, and Cotton,

Crop Years 1999-2009 37Figure 4: Existing and Planned Ethanol Facilities (as of 2007) and

Their Estimated Total Water Use Mapped with thePrincipal Bedrock Aquifers of the United States and TotalWater Use in 2000 67

Figure 5: Estimated Lifecycle Greenhouse Gas Emissions ofEthanol as Compared with Gasoline 82

Figure 6: Domestic Ethanol Production and Federal TaxExpenditures, 1980-2008 95

Figure 7: Annual Biofuels Use under the RFS, 2009-2022 97

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Figure 8: Economic Linkages of Ethanol Production to Food and Agricultural Markets

Abbreviations

AST above-ground storage tanksBCAP Biomass Crop Assistance ProgramCRP Conservation Reserve ProgramDDG dried distillers grainsDOE Department of EnergyEISA Energy Independence and Security Act of 2007

EPA Environmental Protection AgencyMTBE methyl tertiary butyl etherNPDES National Pollutant Discharge Elimination SystemNREL National Renewable Energy LaboratoryR&D research and developmentRFS Renewable Fuel StandardRIN renewable identification numberUST underground storage tanksUSDA U.S. Department of AgricultureUSGS U.S. Geological Survey VEETC Volumetric Ethanol Excise Tax Credit2008 Farm Bill Food, Conservation, and Energy Act of 2008

This is a work of the U.S. government and is not subject to copyright protection in theUnited States. The published product may be reproduced and distributed in its entiretywithout further permission from GAO. However, because this work may containcopyrighted images or other material, permission from the copyright holder may benecessary if you wish to reproduce this material separately.

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Page 1 GAO-09-446

Patricia A. DaltonManaging DirectorNatural Resources and Environment

United States Government Accountability OfficeWashington, DC 20548

August 25, 2009

The Honorable Barbara BoxerChairmanCommittee on Environment

and Public WorksUnited States Senate

The Honorable Susan M. CollinsUnited States Senate

As requested, this report discusses the challenges and potential effectsassociated with the increased production and use of biofuels in the UnitedStates. We are suggesting that the Congress consider actions to addressthe potential environmental effects of increased biofuels production andwhether revisions are needed to federal financial support for theproduction of conventional ethanol. We are also recommending that theSecretaries of Agriculture and Energy and the Administrator of theEnvironmental Protection Agency take actions to minimize the potentialeffects of the nations biofuels production efforts.

As agreed with your offices, unless you publicly announce the contents ofthis report earlier, we plan no further distribution until 30 days from thereport date. At that time, we will send copies of this report to otherappropriate congressional committees; the Secretaries of Agriculture,Energy, the Interior, and the Treasury; and the Administrator of theEnvironmental Protection Agency. The report also will be available at nocharge on the GAO Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please contactme at (202) 512-3841 or [email protected]. Contact points for our Offices ofCongressional Relations and Public Affairs can be found on the last pageof this report. GAO staff who made major contributions to this report are

listed in appendix XI.

Biofuels
http://gao.gov/mailto:[email protected]:[email protected]://gao.gov/


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Executive Summary

For the past several decades, the United States has enjoyed relativelyinexpensive supplies of crude oil, which has accounted for almost all of

portation. However, this reliance onportation makes the U.S. economy vulnerable to even

harms U.S. balance ofgreenhouse gas emissions

primarily carbon dioxide, methane, and nitrous oxidewhich has resultedin global climate change with potentially damaging long-term effects. Thefederal government has promoted biofuels as an alternative to petroleum-based fuels since the 1970s, and production of the most common U.S.biofuelethanol from corn starchreached 9 billion gallons in 2008. The

Energy Policy Act of 2005 created a Renewable Fuel Standard (RFS) thatgenerally required gasoline and diesel in the United States 1 to contain 4billion gallons of renewable fuels, such as ethanol and biodiesel, in 2006and 7.5 billion gallons in 2012. 2 The Energy Independence and Security Act(EISA) of 2007 expanded the RFS by requiring that U.S. transportation fuelcontain 9 billion gallons of renewable fuels in 2008 and increasing annuallyto 36 billion gallons in 2022. 3 The 36-billion-gallon total must include atleast 21 billion gallons of advanced biofuelsdefined as renewable fuelsother than ethanol derived from corn starch that meet certain criteriaand can include up to 15 billion gallons of conventional biofuelsdefinedas ethanol derived from corn starch. EISA requires that most advancedbiofuels (at least 16 billion of the 21-billion-gallon total) be produced fromcellulosic materials, or feedstocks, including perennial grasses, cropresidue, and the branches and leaves of trees. However, advanced biofuelsare at the earliest stages of being commercially produced in the UnitedStates, and a number of logistical and technical challenges must still beovercome before they are economically viable. In addition, some research

Executive Summary

Purposethe energy consumed for transpetroleum for transminor disruptions in the global crude oil supply,payments in trade, and contributes to

1Under the act, the RFS applies to transportation fuel sold or introduced into commerce in

the 48 contiguous states. However, the Administrator of the Environmental ProtectionAgency (EPA) is authorized, upon a petition from Alaska or Hawaii, to allow the RFS toapply in that state. On June 22, 2007, Hawaii petitioned EPA to opt into the RFS, and the

Administrator approved that request. For the purposes of this report, statements that the

RFS applies to U.S. transportation fuel refer to the 48 contiguous states and Hawaii.2Pub. L. No. 109-58, 1501 (2005). The act authorizes the EPA Administrator, in consultation

with the Secretaries of Agriculture and Energy, to waive the RFS levels established in theact, by petition or on the Administrators own motion, if meeting the required level wouldseverely harm the economy or environment of a state, a region, or the United States orthere is an inadequate domestic supply. Throughout this report, the RFS levels establishedin the act are referred to as requirements, even though these levels could be waived by theEPA Administrator.

3Pub. L. No. 110-140, 201 (2007).

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Executive Summ

ary


in recent years has questioned the extent to which corn starch ethanolcompared with gasoline, reduces lifecycle greenhouse gas emissions thatoccur during the process of growing, harvesting, and transporting thfeedstock; producing the biofuel; and using the biofuel in a vehicle. Someresearch has also identified other adverse environmental effects fromproducing corn for ethanol.

The Chairman of the Senate Committee on Environment and Public Worksand Senator Susan M. Collins asked GAO to assess several issues relatedto increased U.S. production of ethanol and other biofuels. Specificallythis report examines (1) the known agricultural and related effects of

increased biofuels feedstock production in the United States; (2) theknown environmental effects of increased feedstock cultivation andconversion and biofuels use in the United States; (3) the results,assumptions, and limitations of key scientific analyses of the lifecyclegreenhouse gas effects of biofuels produced from different feedstocks; (4)federal support for developing a domestic biofuels industry; (5) federalfunding for advanced biofuels research and development (R&D); and (6key challenges in meeting the RFSs specified levels.

To assess the effects of increased biofuels production, GAO used asnowball sampling technique that identified 62 studies on the agriculturaeffects, 62 articles on the environmental effects, and 46 articles on thelifecycle greenhouse gas effects published in scientific journals andgovernment publications. Next, GAO identified recognized experts in eachfield, in collaboration with the National Academy of Sciences, andinterviewed them using a semistructured interview format. In addition,GAO interviewed program managers, scientists, economists, researchers,

, as

e

,

)

l

and other staff from the Departments of Agriculture (USDA), Energy(DOE), the Interior, and the Treasury; the Environmental Protection

ssd

economists. GAO applied conventional economic reasoning in

gh

ederal and industry reports; interviewed federal agency officialstives of nongovernmental organizations and

Agency (EPA); the National Science Foundation; and the Department ofCommerces National Oceanic and Atmospheric Administration. To assefederal support for developing a domestic biofuels industry, GAO obtaineTreasury data on federal tax expenditures, reviewed relevant economic

literature, and interviewed cognizant federal officials and academic andgovernmentanalyzing the incidence of tax credits. To assess federal funding supportfor advanced biofuels R&D, GAO obtained DOE, USDA, and EPA data ontheir obligations for R&D and loan guarantees for fiscal years 2005 throu2008 and interviewed cognizant agency officials. To assess key challengesin meeting the RFSs requirements, GAO reviewed relevant documents,including fand scientists, and representa


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Executive Summary

industry associations. In doing this work, GAO conducted site visits atDOEs National Renewable Energy Laboratory, Argonne NationalLaboratory, and Oak Ridge National Laboratory and USDAs NationalCenter for Agricultural Utilization Research and Eastern RegionalResearch Center. See chapter 1 for a more detailed discussion of GAOmethodology.

s

hd

thanols. A

nt of domesticethanol is made from corn grown in the Midwest. The corn starch can be

d into

lion

ftera

Biofuels, such as ethanol and biodiesel, are an alternative to petroleum-based transportation fuels and are produced from renewable sources sucas corn, sugar cane, and soybeans. In 2008, the United States consume

about 138 billion gallons of gasoline and about 10 billion gallons ofbiofuels, primarily ethanol. Ethanol, the most common U.S. biofuel, ismainly used as a gasoline additive in blends of about 10 percent eand 90 percent gasoline, known as E10, which is available in most staterelatively small volume is also blended at a higher level called E85ablend of 85 percent ethanol and 15 percent gasolinewhich can only beused in specially designed vehicles, known as flexible-fuel vehicles, thatcan use either gasoline or E85 for fuel. About 98 perce

Background

converted relatively easily into sugar and then fermented and distilleethanol.

The RFS requires that U.S. transportation fuels in 2022 contain 36 bilgallons of biofuels. To be eligible for consideration under the RFS,renewable fuels produced by biorefineries that begin construction aEISAs enactment on December 19, 2007, must generally achieve at least20 percent reduction in lifecycle greenhouse gas emissions as comparedwith petroleum fuels. However, advanced biofuels and biomass-baseddiesel must generally achieve at least a 50 percent reduction in lifecyclegreenhouse gas emissions relative to baseline petroleum fuels, whilecellulosic biofuels must generally achieve at least a 60 percent reduction,regardless of when the biorefinery producing the fuel was constructed. 4Currently, EPA determines a biofuels eligibility under the RFS based, in

part, on its lifecycle greenhouse gas emissions. However, after 2022, EISArequires that EPA, in coordination with DOE and USDA, establish the RFS

4While EISA specifies the reductions in lifecycle greenhouse gas emissions that each type

of renewable fuel must achieve, it also authorizes EPA to adjust the required reductions ifthe specified reduction is not commercially feasible for fuels made using a variety offeedstocks, technologies, and processes. EPAs proposed rule, if finalized, would adjust thereduction for advanced biofuels to 44 or 40 percent. 74 Fed. Reg. 24904 (May 26, 2009).



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Executive Summary

based, in part, on the impact of the production and use of renewable fueon the environment, including on air quality, wildlife habitat, waterand water supply. EPA is undertaking some of these analyses and inclua partial assessment of water and air impacts in the preamble to thproposed RFS rulemaking, published on May 26, 2009, even though thisinformation is

lsquality,

dede

currently not used to determine which biofuels are eligiblefor consideration under the RFS.

22

uldrm

his

and enzymes break down complex plant molecules to produceethanol, while others are piloting the use of thermochemical processes,

soybeans and cotton. While higher corn prices have created additionalincome for corn producers, they have also increased feed costs for

ocal

Principal Findings

Also, at least 16 billion of the 36 billion gallons of biofuels required in 20are to be made from such cellulosic feedstocks as perennial grasses, cropresidue, and wood waste. Cellulosic feedstocks are diverse. Some

feedstocks are abundant and relatively inexpensive, and their use cogreatly expand biofuel production. These feedstocks might also raise faincome, reduce greenhouse gas emissions, and improve water quality ascompared with conventional corn starch ethanol. However, at present, thetechnology to economically grow, harvest, and transport cellulosicfeedstocks is untested on a large scale. In addition, most of the energy inplant and tree biomass is locked away in complex cellulose andhemicellulose molecules, and technologies to produce biofuels from ttype of feedstock economically are still being developed. Some cellulosicbiorefineries are piloting the use of biochemical processes in whichmicrobes

which use heat and chemical catalysts to turn plant material into a liquidthat more closely resembles petroleum.

Biofuels production has had mixed effects on U.S. agriculture with regto land use, crop selection, livestock production, rural economies, andfood prices. For example, the increasing demand for corn for ethanolproduction has contributed to higher corn prices, provided economic

incentives for some producers to devote additional acres to cornproduction, and resulted in reduced production of other crops, such as

Biofuels Production Has ardHad Mixed Effects on U.S.

Agriculture, but the Effectsof Expanded Production

Are Less Certain

livestock producers. At the same time, the number of biorefineriesproducing ethanol or other biofuels has grown considerably, offering newemployment opportunities in rural communities as well as a boost to lcommerce and tax revenues, although experts views on the magnitudeand permanence of these benefits varies. In addition, according to USDA



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Executive Summary

and other sources, the increasing use of corn for ethanol production,among other factors such as high energy costs and tight global grainsupplies, likely contributed to higher retail food prices by increasing theprice of corn used for food processing and animal feed. The potentialfuture effects of expanded biofuels production, including production ofnew energy crops for advanced biofuels, are uncertain but could besignificant, particularly to the exte

nt these new crops affect theproduction of other crops and livestock. Some USDA farm, forest,

ter

Corn is a

erts

e additional corn production willlead to an increase in fertilizer and sediment runoff, impairing streams and

ther water bodies. Furthermore, experts believe that as cultivation ofome crops such as corn for biofuels production increases,

environmentally sensitive lands currently enrolled in conservationrograms may be moved back into production, thereby increasing

duce

ly,tion.will

ge

Increased BiofuelsProduction Could Have a

Variety of EnvironmentalEffects, but the MagnitudeIs Largely Unknown

conservation, and extension programs could potentially support thetransition to cellulosic feedstock production, although changes may beneeded for these programs to level the playing field in light of the

support they already provide for the production of food and feed crops.

The increased cultivation of corn for ethanol, its conversion into biofuels,and the storage and use of these fuels could affect water supply, waquality, air quality, soil quality, and biodiversity, but future movementtoward cellulosic feedstocks could reduce some of these effects.relatively resource-intensive crop, requiring significant amounts offertilizer and pesticide applications and additional water to supplementrainfall, depending on where the crop is grown. As a result, some expbelieve that increased corn starch ethanol production may result in thecultivation of corn on arid lands that require irrigation, contributing toadditional ground and surface water depletion in water-constrainedregions. In addition, some experts believ

os

pcultivation of land that is susceptible to erosion and decreasing availablehabitat for threatened species. However, some of these effects on waterquality and habitat may be mitigated by the use of certain agriculturalconservation practices. In the future, farmers may also adopt cellulosic

feedstocks, such as switchgrass and crop residues, which could rewater and land-use effects relative to corn. In addition, the process ofconverting feedstock into biofuels may also adversely affect water suppwater quality, and air quality as more biorefineries move into producFor example, biorefineries require water for processing biofuels andneed to draw from existing water resources, which are limited in somepotential production areas. However, the effects will depend on thelocation and size of the facility and the feedstock used. Finally, the storaand use of certain ethanol blends may pose other environmental problems



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Executive Summary

such as leaks in underground storage tanks that are not certified to stosuch blends and increased emissions of certain air pollutants whenethanol is used in most cars; however, less is known about the extent ofthese effects. Although EPA included a partial assessment of water andeffects in the preamble of its May 2009 RFS proposed rulemaking, EISAdoes not require EPA to determine what fuels are eligible forconsideration under the RFS based on their lifecycle environmeneffects, apart from greenhouse gas emissions.

Twelve key scientific studies that GAO reviewed provided a wide ran

estimates on the lifecycle greenhouse gas emissions of biofuels relative t

re

air

tal

ge of

ofossil fuelsfrom a 59 percent reduction to a 93 percent increase in

missions for conventional corn starch ethanol, a 113 percent reduction to

ol

o

dn

re in

biofuelsnges in

in

osic

e is

ycle

Researchers Disagree onHow to Account forIndirect Land-Use Changes

f

ein Estimating the LiGreenhouse Gas Effects oBiofuels Production

fecyclea 50 percent increase for cellulosic ethanol, and a 41 percent to 95 percentreduction for biodiesel. Most of the studies found that corn starch ethanachieves some greenhouse gas reduction benefits and that cellulosicethanol is likely to be more beneficial. Different assumptions about theagricultural and energy inputs used in biofuel production and how tallocate the energy used in this production to co-products, such asdistillers grains, primarily explain why the greenhouse gas emissionestimates among these studies varied. However, most of these studies dinot attempt to account for the effect of increased biofuels production oindirect land-use changesconverting nonagricultural lands elsewhethe world to replace agricultural land used to grow biofuels crops tomaintain world production of food, feed and fiber cropseven though it iswidely recognized that land-use changes could be the most significantsource of lifecycle greenhouse gas emissions associated withproduction. Three studies that have addressed indirect land-use chatheir methodologies each reported that biofuels had a net increasegreenhouse gas emissions relative to fossil fuels and concluded thatindirect land-use changes, in fact, eliminate the greenhouse gas reductionbenefits associated with corn starch ethanol, biodiesel, and even cellulbiofuels when produced from certain feedstocks.

Many of the lifecycle analysis researchers GAO interviewed stated thergeneral consensus on the approach for measuring the direct effects ofincreased biofuels production, but disagreement about assumptions andassessment methods for estimating the indirect effects of global land-usechange. EPA is required to assess significant greenhouse gas emissionsfrom land-use change because only biofuels that achieve certain lifecemission reductions relative to petroleum fuels are eligible forconsideration under the RFS. In particular, researchers disagree about



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Executive Summary

what nonagricultural lands will be converted to maintain world productioof food, feed, and fiber crops. Although research for measuring indirland-use changes as part of the greenhouse gas analysis is only in the earlstages of development, EISA directed EPA to promulgate a rule todetermine the lifecycle greenhouse gas emissions of biofuels included inthe RFS, including significant emissions from land-use changeresearchers told GAO that the lack of agreement on standardized lifeassumptions and assessment methods, combin

nect

y

s. Severalcycle

ed with key informationgaps in such areas as feedstock yields and domestic and international

nd-use data, greatly complicate EPAs ability to promulgate this rule.

c

rofuel

all

e

echnology for the

conventional corn starch ethanol industry is mature and its production

t

la

The federal government has supported the development of a domestibiofuels industry primarily though tax credits, the RFS, and a tariff onethanol imports. The Energy Tax Act of 1978, among other things,provided tax incentives designed to stimulate the production of ethanolfor blending with gasoline, which were restructured as the VolumetricEthanol Excise Tax Credit (VEETC) in 2005.5 Subsequently, in Decembe2007, EISA expanded the RFS by substantially increasing its annual bivolume requirements, including up to 9 billion gallons of conventioncorn starch ethanol in 2008 and up to 15 billion gallons of conventionacorn starch ethanol in 2015. As a result, the VEETCs annual cost to theTreasury in forgone revenues could grow from $4 billion in 2008 to $6.75billion in 2015 for conventional corn starch ethanol, even though the 2008Farm Bill reduced the VEETC from 51 cents to 45 cents per gallon forethanol starting in 2009. The United States also controls ethanol imports,which qualify for the VEETC, by imposing a tariff of 54 cents per gallonplus 2.5 percent of the ethanols value. However, two of these toolsthVEETC and the RFScan be duplicative with respect to their effects onethanol consumption. Because U.S. ethanol consumption is unlikely toexceed the 10.5 billion gallons allowed under the RFS in 2009, unlesscrude oil prices rise significantly, GAO and others have found that undercurrent market conditions the VEETC does not stimulate additionalethanol consumption. In addition, the processing t

Biofuels

capacity is nearing the effective RFS limit of 15 billion gallons per year forconventional ethanol beginning in 2015. In light of this situation, somerecent studies have suggested that the VEETC be terminated or phased ou

nd the

archEthanol

Federal Tax Credits, theRFS, and the Ethanol TariffHave Primarily SupportedConventional Corn St

5The tax credit is paid to the crude oil refiners or gasoline wholesalers that ble

ethanol with gasoline.

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Executive Summary

or be revised by, for example, modifying it to provide a stimulus whencrude oil prices are low but reducing its size when crude oil prices rise.The economists GAO interviewed noted that removing the VEETC wouldaffect motor fuel blenders, consumers, and biofuels producers diffedepending upon market conditions. For example, one economist statedthat when the RFS causes biofuels consumption to be higher than itotherwise would be, most of the VEETCs benefits go to consumers withlower crude oil prices and go to producers with higher crude oil prices.Another economist said that motor fuel blenders would likely lose if thVEETC were removed, but the exact impacts would depend on supply a

rently,

end

demand elasticities.

lonor

atd

in

ction

ch

ty

stover (the cobs, stalks, leaves, and husks of corn plants) whilemaintaining soil organic matter.

Federal R&D MainlySupports the Developmentof Advanced CellulosicBiofuels

In addition to the VEETC, which predominantly benefits conventionalcorn starch ethanol, the Congress has provided tax credits of $1 per galfor producing or blending advanced biodiesel and $1.01 per gallon fproducing cellulosic biofuels. Both biodiesel and cellulosic biofuels havehigh production costs that have limited their ability to compete in fuelmarkets. To date, these tax credits have predominantly supportedbiodiesel production because only small amounts of cellulosic biofuels arecurrently being produced. The RFS requirement for biodiesel rises fromleast 500 million gallons in 2009 to at least 1 billion gallons in and beyon2012 and for cellulosic biofuels rises from at least 100 million gallons in2010 to at least 16 billion gallons in 2022.

DOE and USDA, the principal federal sponsors of biofuels R&D, obligatedabout $500 million to develop advanced cellulosic biofuels in fiscal year2008. In February 2009, the American Recovery and Reinvestment Act of2009 appropriated $800 million to DOE for biomass-related projects, andMarch 2009 the Omnibus Appropriation Act, 2009, appropriated $217million for DOEs biomass and biorefinery systems R&D program. Asubstantial portion of DOEs funding supports its Integrated BiorefineriesProgram, which seeks to demonstrate technologies for using a widevariety of cellulosic feedstocks and operating profitably once constru

costs are covered, and R&D on next-generation cellulosic feedstocks, suas algae. USDAs biofuels R&D seeks, among other things, to developpractices and systems that maximize the sustainable yield of high-qualibioenergy feedstocks by, for example, maximizing the harvest of corn



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Executive Summary

The domestic biofuels industry faces multiple challenges to meet the RFincreasing volume requirement of biofuels, particularly cellulosic andother advanced biofuels. For example, cost-effective methods andtechnologies need to be developed to address the logistical difficulties incollecting, transporting, and storing the leaves, stalks, tree trunks, andother feedstocks that cellulosic biorefineries will process. Also, someDOE, EPA, and USDA officials expressed concern about inconsistencies ihow EISA and the 2008 Farm Bill define renewable biomass becausemunicipal waste and wood residues on federally managed forest land areexcluded under EISA but not under the 2008 Farm Bill. If not resolved,these inconsistencies

Ss

n

could complicate the promulgation of regulations

and implementation of programs for achieving the RFS. Another challenge

uding

thanol because, for example,pipelines do not exist to cost effectively transport biofuels from

iorefineries in the Midwest to East and West Coast markets. The U.S.

the

s,

the existing petroleum distribution andstorage system and increased consumer purchases of flexible-fuel

ehicles. Advances in thermochemical processing technology could yield

Significant ChallengesMust Be Overcome to Meetthe RFSs Increasing

Volumes of Biofuels

lies in the cellulosic conversion technology itself, which needs morecommercial development and is expensive relative to the cost ofproducing ethanol from corn starch. Researchers are still developingpretreatment processes and biochemical and thermochemical refiningtechnologies. While the RFS requires only modest amounts of biodieselbeginning in 2009, this industry faces its own set of challenges, inclthe cost of feedstocks and a limited U.S. market.

An immediate challenge facing the expansion of the domestic biofuelsindustry under the RFS is infrastructure limitations for distributing,storing, and using increasing volumes of e

bbiofuels distribution infrastructure can deliver current volumes of ethanolto consumers. However, the nation may reach the blend wallthe pointwhere all of the nations gasoline supply is blended as E10 and extravolumes of ethanol cannot be readily consumedas early as 2011 becauseEPA, under the Clean Air Act, currently limits the ethanol content ingasoline to 10 percent for most U.S. vehicles, the current economicslowdown has reduced U.S. gasoline consumption, and the RFS requiresincreasing amounts of biofuels. DOE has initiated R&D to determinelong-term effects of using blends above 10 percent ethanol on a cars

emission control system and engine. If EPA and vehicle manufacturersfind that the current U.S. vehicle fleet cannot use higher ethanol blendadditional ethanol consumption will be limited to flexible-fuel vehiclesthat can use E85. However, expanding E85 consumption would requiresubstantial investment in an ethanol distribution and storageinfrastructure that is distinct from

v



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Executive Summary

nonethanol products that the existing petroleum refining and distributioninfrastructure can useand therefore reduce blend wall issues.

The RFS requires that the nations transportation fuel contain 36 billiongallons of biofuels in 2022, primarily advanced biofuels. To date, thedomestic biofuels industry has achieved about 30 percent of this level,largely through the production of conventional corn starch ethanol. Gforward, federal agencies face significant challenges to ensure thedomestic biofuels industry can meet the RFSs more demanding advancbiofuel requirements, while minimizing any unintended adverse effects.

For example, one key challenge is identifying and mitigating any adverseenvironmental effects. Given the potential for increased biofuelsproduction to further exacerbate existing environmental problembelieves that assessing the viability of a biofuel feedstock will beincomplete without a consideration of the related lifecycle environmeneffects. Although EPAs May 2009 proposed rulemaking included a partiaanalysis of water and air effects of biofuel production, EISA does notrequire EPA to determine what renewable fuels ar

oing

ed

s, GAO

tall

e eligible forconsideration under the RFS based on their lifecycle environmental

nation

ncies

d

e

f

els. With

and

production and more effectively achieve the RFS. How federal agencies

Conclusions

effects, apart from greenhouse gas emissions. A second key challenge isaddressing the likelihood that ethanol production will exceed thecapability of the petroleum infrastructure and todays fleet of vehicles todistribute and use the ethanol, referred to as the blend wall. Thewill need to make a substantial investment in a new ethanol distributioninfrastructure to reach the RFS requirements, unless cost-effective biofuelproducts are developed that the existing petroleum refining, distribution,and storage infrastructure can use. A third key challenge is inconsistein how EISA and the 2008 Farm Bill define renewable biomass that, if notresolved, could complicate federal agencies efforts to promulgateregulations and implement programs for achieving the RFS.

EISA, the 2008 Farm Bill, and the American Recovery and ReinvestmentAct of 2009 have extended and expanded existing programs, authorize

new ones, and appropriated substantial funding for R&D to stimulate thdomestic biofuels industry. In particular, EISA significantly expanded theRFS to require that U.S. transportation fuels contain 36 billion gallons obiofuels in 2022, while the 2008 Farm Bill somewhat reduced the VEETCand established a new tax credit for advanced cellulosic biofuthese many efforts, federal agencies are challenged to not only be efficientin minimizing duplicative incentives, but also to ensure that existingnew federal programs are harmonized to promote advanced biofuel



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Executive Summary

choose to address these challenges will shape the effect that biofuelsproduction will have on the nations continuing efforts to balance the needfor new sources of energy, the increasing demand for food, and the need

protect the environment.

.

at

the

mining

ther

np a

coordinated approach for identifying and researching unknown variables

e

Matters for

to

GAO provides two matters for congressional consideration and threerecommendations for executive action to help address these challenges

In addition to the currently required lifecycle greenhouse gas emissionsanalysis, the Congress may wish to consider amending EISA to require th

the Administrator of the Environmental Protection Agency develop astrategy to assess the effects of increased biofuels production onenvironment at all stages of the lifecyclecultivation, harvest, transport,conversion, storage, and useand to use this assessment in deterwhich biofuels are eligible for consideration under the RFS. This wouldensure that all relevant environmental effects are considered concurrentlywith lifecycle greenhouse gas emissions.

Because the RFS allows rapidly increasing annual amounts ofconventional biofuels through 2015 and the conventional corn starchethanol industry is mature, the Congress may wish to consider wherevisions to the VEETC are needed. Options could include maintaining theVEETC, reducing the amount of the tax credit or phasing it out, ormodifying the tax credit to counteract fluctuations in crude oil prices.

To improve EPAs ability to determine biofuels greenhouse gas emissionsand define fuels eligible for consideration under the RFS, GAOrecommends that the Administrator of the Environmental ProtectioAgency and the Secretaries of Agriculture and Energy develo

CongressionalConsideration

Recommendations forExecutive Action

and major uncertainties in the lifecycle greenhouse gas analysis ofincreased biofuels production. This approach should include a

coordinated effort to develop parameters for using models and a standardset of assumptions and methods in assessing greenhouse gas emissions forthe full biofuel lifecycle, such as secondary effects that would includeindirect land-use changes associated with increased biofuels production.

To minimize future blend wall issues and associated ethanol distributioninfrastructure costs, GAO recommends that the Secretaries of Agricultureand Energy give priority to R&D on process technologies that produc



21/184

Executive Summary

biofuels that can be used by the existing petroleum-based distributionstorage infrastructure and the current fleet of U.S. vehicles.

To address inconsistencies in

and

existing statutory language, GAOrecommends that the Administrator of the Environmental Protection

,

legislative changes the Administrator determines may be needed to clarifyhat biomass materialbased on type of feedstock or type of landcan

ir

sure that coordinated scientificdiscussions do not lead to standard methods that become codified in

rmation

sions.

of indirect land-use changes, GAO believes that a coordinated approachr identifying and researching unknown variables and major uncertainties

y the

goals that

d thatropose

that the report generally tends to emphasize negative aspects of increased

currently being researched. While GAO believes its reporting of the

nts

Agency, in consultation with the Secretaries of Agriculture and Energyreview and propose to the appropriate congressional committees any

wbe counted toward RFS.

GAO provided USDA, DOE, and EPA with a draft of this report for thereview and comment. In its written comments, USDA stated that thereport is comprehensive, well written, and accurate. Regarding therecommendation for determining biofuels lifecycle greenhouse gasemissions, USDA agreed with the general premise implicit in therecommendation, but cited the need to en

Biofuels

regulations that would inhibit the adoption and use of new infoand improved or more appropriate methods as they become available.GAO agrees with USDAs concern that the RFS regulation should notcodify standard methods that might inhibit the development of betterinformation or methods for assessing lifecycle greenhouse gas emisHowever, because only three scientific studies have examined the effects

fowill benefit EPAs lifecycle analysis. Regarding the recommendation forgiving priority to R&D for producing biofuels that can be used bexisting petroleum-based infrastructure, USDA agreed that this is animportant goal, but cited other similarly important biofuels R&Dits scientists are pursuing. Regarding the recommendation for clarifyingwhat biomass material can be counted toward the RFS, USDA agreethe executive agencies should consult on a definition and then p

any legislative changes to the appropriate congressional committees,stating that the department supports the 2008 Farm Bills definition. USDAalso provided four substantive comments on the report. First, while thedepartment does not dispute most findings and conclusions, USDA noted

biofuels production. GAO notes that USDA, in its comments,acknowledged the environmental challenges posed by increased biofuelproduction, and GAO agrees that strategies to mitigate these effects are

Agency Commeand GAOs Evaluation

Page 13 GAO-09-446


22/184

Executive Summary

research on these effects has been balanced, GAO reviewed thisdiscussion and provided additional clarification where appropriate.Second, USDA stated that the report is written as if EPAs study on the

s findingsrs

is

ization of EPAs rulemaking is accurate. Third,USDA suggested that the report discuss legislative restrictions on

ligibility for some competitive research programs, which it believes are

ofndond

ent in

rees

e-

RFS is still in progress and suggests that the report discuss EPAand conclusions. GAO notes that EPA recently published peer revieweassessments of four key components of the lifecycle greenhouse gasemissions analysis in its May 2009 proposed rule. GAO believes that thpeer review is an important first step for scientists to understand andvalidate the assumptions and models that EPAs lifecycle analysis usedand that GAOs character

eimportant obstacles to achieving the best possible biofuels research. GAOnotes that examining the funding restrictions in the Energy Policy Act2005 and other legislation that exclude federal government owned aoperated research facilities from receiving DOE grant funds was beythe scope of work for this review. Finally, USDA said the assessmappendix VI of the impact of linkages between the corn ethanol industryand the livestock industry needed clarification and correction. GAO agand has revised the appendix, as appropriate. See appendix VIII forUSDAs comments.

In its written comments, DOE also addressed each of the threerecommendations. Regarding the recommendation for determiningbiofuels lifecycle greenhouse gas emissions, DOE noted that EPA alreadyconsults with DOE on these matters and added that DOE would welcomethe opportunity to become more engaged in this process if requested to doso by the EPA Administrator. Regarding the recommendation for givingpriority to R&D for producing biofuels that can be used by the existingpetroleum-based infrastructure, DOE commented that it has alreadyexpanded in this direction, noting recent and planned initiatives. Forexample, DOE cited a new solicitation to fund consortia to accelerate thedevelopment of advanced biofuels under the American Recovery andReinvestment Act also supports infrastructure-compatible fuels and alga

based fuels, and DOE anticipates that hydrocarbon fuels will become ahigher priority in the future and contribute to RFS requirements foradvanced biofuels. Regarding the recommendation for clarifying whatbiomass material can be counted toward the RFS, DOE stated that thedepartment would welcome the opportunity to participate in deliberationsabout how to clarify the biomass definition if requested to do so by theEPA Administrator, adding that DOE supports an expansion of biomasseligibility to include materials that do not come from federal landsclassified as environmentally sensitive and that can be grown and



23/184

Executive Summary

harvested in a sustainable manner. DOE also provided four substacomments on the report. First, DOE stated that the blend wall is notnecessarily insurmountable to achieving the RFSs goals, citing EnergyInformation Administration projections that E85 could account for 30percent of the total ethanol volume in 2020. While GAO does not disagreewith this projection, GAO notes that expanded use of E85 would requsubstantial investment in the ethanol transportation and storageinfrastructurefor example, EPA estimates that installing E85 refuelinequipment will average $122,000 per facility. Second, DOE suggested thatGAO revise its footnote in chapter 1 on Cello Energys production plans,noting that the company had recently lost a fraud lawsuit. GAO has

the reference to the Cello biorefinery. Third, in response to GAOsstatement citing DOE and ethanol industry expert concern about thelimited capacity of the freight rail system, DOE said that ethanol cargorepresents a mere fraction of total rail cargo and that the railway industhas plans for major capital expansions over the coming decades. GAOrevised its discussion of the freight rail challenges to increased biofuelsuse in chapter 7 to note, for example, that few blending terminals have thoff-loading capacity to handle large train shipments of ethanol. Finally,DOE noted that Kinder-Morgan has performed extensive testing ontransporting ethanol

ntive

ire

g

revised

ry

e

in existing petroleum product pipelines in Florida.See appendix IX for DOEs comments.

theyear

e the

uels

In its written comments, EPA stated that the report comprehensivelyidentifies the main issues that should be considered when assessingexpanded biofuels production. Regarding GAOs suggestion that theCongress consider amending EISA to require that EPA assess the effectsof increased biofuels production on the environment at all stages of thelifecycle and use this assessment in determining eligible biofuels underRFS, EPA said that (1) this issue might best be addressed by the newlcreated Executive Biofuel Interagency Working Group, (2) EPA has clauthorities and responsibilities under other statutes that may regulateaspects of a biofuels lifecycle, and (3) EISA requires that EPA evaluatenvironmental effects of biofuels and submit a report to the Congress.

GAO acknowledges that EPA has the authority under other statutes tomitigate the environmental effects of biofuels and believes that theevaluation currently required by section 204 of EISA will provide a goodfoundation for the analysis GAO suggests. However, GAO believes thematter for congressional consideration would require EPA to not onlyassess the lifecycle effects of biofuels, but to actually use theseassessments to determine which biofuels are eligible for considerationunder the RFS. Regarding the recommendation for determining bioflifecycle greenhouse gas emissions, EPA stated that the agency has



24/184

Executive Summary

worked closely with USDA and DOE in developing the lifecycleassessment methodology for its proposed rule and with the EuropeanUnion, other international governmental organizations, and scientists onmodeling, including the impact of indirect land-use change. GAO notesthat while EPA has obtained information from USDA and DOE, itslifecycle analysis methodology was not transparent because EPA did notshared its methodology with outside scientists before its Notice oProposed Rulemaking for the RFS regulation was published. GAO believethe recently completed peer review of EPAs methodology, including keyassumptions and its analytical model, will improve the transparency ofEPAs lifecycle analysis. Furthermore, the indirect effects of land-use

change on lifecycle greenhouse gas emissions are not well understoand additional research is needed to address data limitations, unknowvariables, and major uncertainties. Regarding the recommendation forclarifying what biomass material can be counted toward the RFS, EPAstated that the agency is working with USDA to identify inconsistenciesand interpret how biomass is treated under EISA and the 2008 Farm Bill.EPA also provided two substantive comments on the report. First, EPAstated that the analyses for its May 2009 proposed rule on lifecyclegreenhouse gas emissions represent the most up-to-date andcomprehensive assessment of many of these issues but commented it wanot clear how GAO considered these an

fs

od,n

salyses for this report. As

previously stated, GAO believes that EPAs recently completed peers

idate

er

w

dts.

review of the key components of its lifecycle greenhouse gas emissionanalysis is an important first step for scientists to understand and valthe data, assumptions, and models that EPAs lifecycle analysis uses.Second, EPA believes that many of the inconsistencies in biofuelsassessments in the reported literature can in large part be explained eithby differences in what is being modeled or, in some cases, by the use ofmore precise or up-to-date data and assumptions. GAO agrees with EPAthat important progress has been made in quantifying the direct effects ofbiofuels production on lifecycle greenhouse gas emissions. However, festudies have been performed that assess the indirect effects of land-usechange, and further research is needed to improve scientific

understanding about the data, assumptions, and assessment models useto estimate these indirect effects. See appendix X for EPAs commen

In addition, USDA, DOE, and EPA provided comments to improve thereports technical accuracy, which GAO incorporated as appropriate.



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Chapter 1: Introduction

Page 17 GAO-09-446


The United States consumes more liquid fuels than any other natroughly 19.4 million barrels per day, or about 23 percent of worldconsumption in 2008even though U.S. consumption fell in 2008 due tohigh crude oil prices and a weakened economy. The U.S. transportationsector is almost entirely dependent on crude oil and accounts for altwo-thirds of total U.S. consumption. To meet the demand for oil in theface of limited and declining domestic production, the nation imporabout two-thirds of its oil in 2008 and will likely continue to do so absentdramatic reductions in consumption or significantly increased use ofalternative fuels. Oil is a global commodity with relatively little spareproduction capacity even as world oil demand has grown substantially

recent years. As demonstrated by the high gasoline prices of 2008, even aminor disruption in global oil supply can cause economic difficulties fortens of millions of Americans. Oil use also adversely affects theenvironment through the emission of greenhouse gasesprimarily carbdioxide, methane, and nitrous oxidewhich has resulted in a warmerglobal climate system with potentially damaging long-term effects. 1

Biofuels are an alternative to petroleum-based transportation fuels aproduced from renewable sources, primarily corn, sugar canesoybeans.2 The United States is the worlds largest producer of biofuels.The Energy Policy Act of 2005 created a Renewable Fuel Standardthat generally required U.S. transportation fuel3 to contain 4 billion gaof renewable fuels, such as ethanol and biodiesel, in 2006 and 7.5 billiongallons of renewable fuels in 2012, absent a waiver from the Administrator

ion

most

ted

in

on

nd are, and

(RFS)llons

ses have

as

ce in

Agency (EPA) is authorized, upon a petition from Alaska or Hawaii, to allow the RFS topply in that state. On June 22, 2007, Hawaii petitioned EPA to opt into the RFS, and the

Administrator approved that request. For the purposes of this report, statements that theRFS applies to U.S. transportation fuel refer to the 48 contiguous states and Hawaii.

1Greenhouse gases trap a portion of the suns heat in the atmosphere and prevent the heat

from returning to space. The insulating effect, known as the greenhouse effect, moderatesatmospheric temperatures, keeping the earth warm enough to support life. According tothe Intergovernmental Panel on Climate Changean organization within the UnitedNations that assesses scientific, technical, and economic information on the effects ofclimate changeglobal atmospheric concentrations of these greenhouse gaincreased markedly as a result of human activities over the past 200 years, contributing to a

warming of the earths climate.2Biofuels can be in solid, gaseous, or liquid form. In this report we refer to liquid biofuels

biofuels.

3Under the act, the RFS applies to transportation fuel sold or introduced into commer

the 48 contiguous states. However, the Administrator of the Environmental Protection

a

Biofuels


26/184



of the Environmental Protection Agency (EPA). 4 The EnergyIndependence and Security Act (EISA) of 2007 expanded the RFS,requiring that U.S. transportation fuels contain 9 billion gallons ofrenewable fuels in 2008 and increasing annually to 36 billion gallons in2022.

In addition to improving the nations energy security by decreasing oilimports and developing rural economies by raising domestic demand forU.S. farm products, increased biofuels consumption may reducegreenhouse gas emissions as compared with fossil fuels. As shown infigure 1, emissions of carbon dioxide and other greenhouse gases occur in

each of the stages of growing, harvesting, processing, and using biofuels.For the past 20 years, researchers have used mathematical modelsparticularly Argonne National Laboratorys GREET modelto esfuel-cycle energy use and lifecycle greenhouse gas emissions directlyassociated with biofuels production and to compare them with the eneuse and emissions of fossil fuels. However, researchers have only re

timate

rgycently

begun to conduct research on the indirect effects of increased biofuels

te the,

air quality.

production by examining the secondary effects of using agricultural landsto grow energy crops. Specifically, researchers are seeking to estimaadded greenhouse gas effects if other lands, locally or elsewhere globallyare cleared and converted into agricultural land to replace the displacedagricultural productionreferred to as land-use change.5 In addition,expanding feedstock supplies and biofuels production may increase theuse of scarce water supplies; raise food prices; and reduce soil, water, and

the

is report, the RFS levels established in the act are referredto as requirements, even though these levels could be waived by the EPA Administrator.

11(o)(1) of the Clean Air Act defines lifecycle greenhouse gas emissions as theaggregate quantity of greenhouse gas emissionsincluding direct emissions and significant

gesnr,

4The act authorizes the EPA Administrator, in consultation with the Secretaries of

Agriculture and Energy, to waive the RFS levels established in the act, by petition or onAdministrators own motion, if meeting the required level would severely harm theeconomy or environment of a state, a region, or the United States or there is an inadequate

domestic supply. Throughout th

5Section 2

indirect emissions such as significant emissions from land-use changesas determined byEPAs Administrator, related to the full fuel lifecycle. Lifecycle emissions include all staof fuel and feedstock production and distribution, from feedstock generation or extractiothrough the distribution and delivery and use of the finished fuel to the ultimate consumewhere the mass values for all greenhouse gases are adjusted to account for their relativeglobal warming potential.


27/184


Figure 1: Greenhouse Gas Emissions Associated with the Biofuels Production Process

Biofuels

Microbes ferment

sugars into

ethanol

Carbon

Dioxide

Carbon

Dioxide

Carbon

Dioxide

Carbon

Dioxide

Carbon

Dioxide

Pre-processing

Cellulose

Harvesting

Biomass

Solar Energy

and Carbon

Dioxide

Sugars

Enzymes break cellulose

down into sugars

Sources: DOE; Art Explosion (images).



28/184


Biofuels

Ethanol is the most commonly producedabout 98 percent of it is made from corn that is grown primarily in the

biofuel in the United States, and

Midwest.6 Corn contains starch, which can be converted relatively easilyinto sugar and then fermented and distilled into fuel ethanol (ethylalcohol), the same compound found in alcoholic beverages. Each 56-pound bushel of corn that is processed in a biorefinery yields roughly 2.7gallons of ethanol fuel. Currently, only the starch from the corn kernel isused to make the fuel, and the remaining substance of the kernel isavailable to create additional economically valuable products. These areknown as co-products and include dried distillers grains, an animal feedprimarily used for beef and dairy cows. About 3 billion bushels of corn, or

about 23 percent of the nations 13-billion bushel corn crop, were used toproduce ethanol during the 2007-2008 corn marketing year, according tothe U.S. Department of Agricultures (USDA) February 2009 estimates.7USDA estimated that this will increase to 3.7 billion bushels, or about 30percent of the corn crop, for the 2008-2009 marketing year.8

Corn is converted to ethanol through fermentation using one of twostandard processes, wet milling or dry milling. The main difference is theinitial treatment of the corn kernel. In the wet-mill process, the cornkernel is steeped in a mixture of water and sulfurous acid that helpsseparate the kernel into starch, germ, and fiber components. The starchthat remains after this separation can then be fermented and distilled intofuel ethanol. In the dry-mill process, the kernel is first ground into flourmeal and processed without separating the components of the corn kernelThe meal is then slurried with water to form a mash and enzymes areadded to convert the starch in the mash to a fermentable sugar. The sugaris then fermented and distilled to produce ethanol. Traditional dry-millethanol plants are cheaper to construct and operate than wet-mill plantsbut yield fewer marketable co-products. Dry-mill plants produce distillersgrains (used as cattle feed) and carbon dioxide (used to carbonate softdrinks) as co-products, while wet-mill plants produce many more co-

6Ethanol is also imported from some member nations of the Caribbean Basin Initiative and

Brazil, which use sugarcane as their feedstock, and produced from domestically grownorghum.

7The 2007-2008 corn marketing year began September 1, 2007, and ended August 31, 2008.

These estimates were based on 93.5 million planted acres in 2007, of which 86.5 millionwere harvested, at an average yield of 150.7 bushels per acre. For 2008, USDA estimatedthat corn growers will plant 86 million acres, of which 78.6 million would be harvested, atan average yield of 153.9 bushels per acre.

s

8

Corn Starch EthanolIs the Primary U.S.Biofuel

Page 20 GAO-09-446


29/184


products, including corn oil, carbon dioxide, corn gluten meal, and corngluten feed.

The biggest use of fuel ethanol in the United States is as an additivegasoline. Ethanol is primarily blended with gasoline in mixtures of ab10 percent, called E10, or less, which can be used in any gasoline poweredvehicle. A relatively small volume is also blended at a higher level calledE85a blend of about 85 percent ethanolwhich can be used only ispecially designed vehicles known as flexible-fuel vehicles because theycan use either gasoline or E85. Ethanol contains only about two-thirds ofthe energy of a gallon of gasoline, so consumers must purchase more fuel

to travel the same distance. A gasoline blend containing 10 percent ethanoresults in a 2 percent to 3 percent decrease in fuel economy, while in ahigher blend such as E85 drivers experience about a 25 percent reductioin fuel economy. Because vehicle manufacturers have generally designedvehicles to operate primarily on gasoline, most warranties fo

inout

n

l

n

r non-flexible-fuel vehicles allow the company to void the warranty if the owner uses

s

es is

tg

g

fuels containing more than 10 percent ethanol.

U.S. biodiesel fuel is made from soybeans and other plant oils (such acottonseed and canola), animal fats (such as beef tallow, pork lard, andpoultry fat), and recycled cooking oils.9 Soybean oil has been the mostcommonly used biodiesel feedstock in the United States.10 According tothe National Biodiesel Board, soybean oil made up about 65 percent of thefeedstock used to produce domestic biodiesel in 2008. The United Statthe worlds largest soybean producer and exporterfarmers producedabout 2.7 billion bushels of soybeans in 2007-2008 and will produce abou3 billion bushels of soybeans in 2008-2009, according to USDA.11 Accordinto the Energy Information Administration, most U.S. biodiesel productionin recent years has been exported to European Union countries. 12However, the European Commission imposed provisional antidumpin

Biofuels

ant feedstocks for biodiesel production are rapeseed in Europe and palm,astor oils in tropical and subtropical countries.

11The 2007-2008 soybean marketing year began September 1, 2007, and ended August 31,

Energy Outlook, April 2009.

Soybean Oil Is the

Major U.S. BiodieselFeedstock

9It is generally estimated that 7.5 pounds of soybean oil will yield 1 gallon of biodiesel.

10Predomin

coconut, and c

2008.

12Energy Information Administration,Short-Term Energy Outlook Supplement: Biodiesel

Supply and Consumption in the Short-Term

Page 21 GAO-09-446


30/184


and antisubsidy duties on U.S. biodiesel imports in March 2009. Biodieselis most comm

only used as a blend with petroleum diesel, and B20 (20

percent biodiesel) is the most commonly used biodiesel blend in the

f 6s

e biofuels. Thesefeedstocks are called cellulosic because much of their biomass is in the

rm of cellulose, a complex molecule found in plants. Plant biomass is

husks of corn plants), corn fiber, wheat straw, rice straw, and sugarcanebagasse.

ills.

Ethanol and Other BiofuelsCan Be Produced from a

Variety of Biomass

United States. The energy content of a gallon of biodiesel is about 8percent lower than that of petroleum diesel, causing vehicles running onB20, for example, to experience about a 2 percent decrease in fueleconomy. At concentrations of up to 5 percent, biodiesel can be used inany application as if it were pure petroleum diesel. At concentrations opercent to 20 percent, biodiesel blends can be used in several applicationthat use diesel fuel with minor or no modifications to the equipment,although certain manufacturers do not extend warranty coverage if

equipment is damaged by these blends.

While ethanol is currently produced primarily from sugar- and starch-richfood crops, the biomass in the stalks, stems, branches, and leaves ofvarious plants and trees can also be used to mak

fomade up primarily of cellulose, hemicellulose, and lignin. Cellulose andhemicellulose are made up of potentially fermentable sugars. Ligninprovides the structural integrity of plants by enclosing the tightly linkedcellulose and hemicellulose molecules, which makes these moleculesharder to reach. Because cellulosic feedstocks are diverse, abundant, andpotentially inexpensive, their use could greatly expand biofuel production.Cellulosic feedstocks include:

Dedicated annual or perennial energy crops: includes switchgrass, foragesorghum, miscanthus, hybrid poplar, and willow.

Agricultural residues: includes corn stover (the cobs, stalks, leaves, and

Forest residues and by-products: includes forest thinnings from standimprovement or removal of excess understory trees, forest residues (deadtrees and branches), and hardwood sawdust and chips from lumber m

Municipal and other wastes: includes household garbage and paperproducts.



31/184


Cellulosic conversion technology currently focuses on two processes:

A biochemical process uses acids and enzymes to break down celluloand hemicellulose into fermentable sugars. This also makes ligninavailable to be burned to produce steam and electricity. In a biochemicalprocess, the percentage of the cellulosic feedstock that is made ofpotentially fermentable sugars will determine its potential ethanol yield.

se

oduces a mixture of carbonmonoxide and hydrogen, known as syngas. Pyrolysisheating biomass in

e absence of oxygenproduces liquid pyrolysis oil. Syngas and pyrolysisil can then potentially be refined into a number of biofuels products,

, into

up to $272 million, subject to annualappropriations, to support the cost of constructing four small biorefineries

13

A thermochemical process uses gasification and pyrolysis technologies toconvert biomass and its residues to fuels, chemicals, and power.Gasificationheating biomass with about one-third of the oxygen

necessary for complete combustionpr

thoincluding ethanol, gasoline, jet fuel, and diesel fuel. Because thethermochemical process can convert the whole plant, including ligninfuel, it can potentially produce more biofuel from a feedstock thanbiochemical conversion. Researchers at the Department of Energys(DOE) National Renewable Energy Laboratory have reported liquidproduct yields of 75 percent (by feedstock weight) when using fastpyrolysis, one method of thermochemical conversion.

Some small biorefineries have begun to process cellulosic feedstocksusing either biochemical or thermochemical conversion technologies.14However, no commercial-scale facilities are currently operating in theUnited States. DOE is providing

that will process cellulosic feedstocks using either a biochemical orthermochemical conversion technology.

13See Biomass Research and Development Board,Increasing Feedstock Production for

Biofuels Economic Drivers, Environmental Implications, and the Role for Researchlds

For example, Cello Energy recently opened a biorefinery in Bay Minette, Alabama, thatuses pyrolysis technology to process tires, hay, straw, wood chips, and switchgrass.

(Washington, D.C., December 2008) for information about biomass yields and fuel yiefor different biofuel feedstocks.

14



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Biofuels

The Energy Tax Act of 1978, among other things, provided tax incentivesdesigned to stimulate the production of ethanol for blending with

placed

Farm Bill) effectively reduced the VEETC to 45 cents per gallon beginning

biofuelsts for

ount of

ughhichthe

ghich offsets the

advantage foreign ethanol producers may gain from the VEETC.

inns

ing auce the amount of renewable

fuels required to be blended in gasoline in whole or in part if thedministrator determines that (1) its implementation would severely harm

gasoline.15 Specifically, the act authorized a motor fuel excise taxexemption for ethanol blends, which effective January 2005 was reby the Volumetric Ethanol Excise Tax Credit (VEETC) to provide ethanolblenders with an excise tax credit of 51-cents per gallon of ethanolthrough 2008.16 The Food, Conservation, and Energy Act of 2008 (the 2008

in 2009 and established a $1.01 per gallon tax credit through 2012 forcellulosic biofuels producers.17 Additional tax credits that supportinclude a $1 per gallon tax credit for biodiesel production, tax credi

small producers of ethanol or agri-biodiesel, an income tax credit foralternative fueling infrastructure, and a depreciation deduction forcellulosic ethanol facilities.18 These tax credits are examples of taxexpenditures, so named because they result in revenue losses for thefederal government because the government forgoes a certain amtax revenue to encourage specific behaviors by a particular group oftaxpayers, making them in effect spending programs channeled throthe tax system. The largest of these tax expenditures is the VEETC, wcost $4 billion in forgone tax revenue in fiscal year 2008, according toDepartment of the Treasury. The 2008 Farm Bill also extended throu2010 a 54-cent-per-gallon tariff on imported ethanol, wh

The federal government also supports biofuels through the RFS. EISAamended the RFS in 2007 to require that the amount of renewable fuelstransportation fuel in the United States increase from 11.1 billion galloin 2009 to 36 billion gallons in 2022. However, EISA allows theAdministrator of EPA, after consulting with USDA and DOE and holdpublic notice and comment period, to red

A

15Pub. L. No. 95-618, 221 (1978).

16Pub. L. No. 108-357, 301 (2004).

1) Small Ethanol Producer Credit; Pub. L. No. 109-58,1345, 1342 (2005) Small Agri-Biodiesel Tax Credit and Alternative Fuel Infrastructure Tax

The FederalGovernment HasUsed TaxExpenditures, theRFS, and an EthanolImport Tariff toStimulate Domestic

Biofuels Production

17The 2008 Farm Bill limits the combined value of all tax credits for cellulosic ethanol to

$1.01 per gallon.

18Pub. L. No. 101-508, 11502 (199

Credit; Pub. L. No. 109-432, 209 (2006) Special Depreciation Allowance for CellulosicBiomass Ethanol Plant Property

Page 24 GAO-09-446


33/184


the economy or environment of a state, a region, or the United States or(2) there is an inadequate domestic supply.

For 2009, the 11.1 billion gallons of biofuels must include at least 600million gallons of advanced biofuelsdefined as renewable fuel other thanethanol derived from corn starch that meet certain criteriaand upbillion gallons of conventional biofuelsdefined as ethanol derived fromcorn starch and includes other biofuels that are not considered to beadvanced biofuels.

to 10.5

tains

se

ons.

rrch

ed

e

fuels,

19 The RFS further specifies that of the 600 milliongallon of advanced biofuels for 2009, at least 500 million gallons mustcome from biomass-based diesel.20

Beginning in 2010, the general requirement for advanced biofuel conseparate volume requirements for both biomass-based diesel andcellulosic biofuels. Beginning in 2015 and continuing through 2022, theadvanced biofuel requirements essentially limit the annual amount ofconventional biofuels that can count toward the RFS to 15 billion gallThe 36-billion-gallon biofuel requirement for 2022 includes a minimum of21 billion gallons of advanced biofuels, of which (1) at least 16 billiongallons must be cellulosic biofuels, (2) at least 1 billion gallons must bebiomass-based diesel, and (3) the remaining 4 billion gallons can be otheadvanced biofuels, such as butanol or ethanol derived from sugar or staother than corn starch.

To be eligible for consideration under the RFS, renewable fuels producby biorefineries for which construction began after EISAs enactment onDecember 19, 2007, must generally achieve at least a 20 percent reductionin lifecycle greenhouse gas emissions as compared with baselinpetroleum fuels.21 However, advanced biofuels and biomass-based dieselunder the RFS must generally achieve at least a 50 percent reduction inlifecycle greenhouse gas emissions relative to baseline petroleum

19Because of its lower production cost, corn starch ethanol is the predominant U.S. biofuel

ry scheme for the RFS created pursuant to the EnergyPolicy Act of 2005 did not provide a mechanism for implementing this requirement in 2009.

ss-based diesel requirement by 500 million gallons and allowing obligateddemonstrate compliance only at the end of the 2010 compliance period. 73 Fed.

o

used to meet the RFS.20

EPA determined that the regulato

Accordingly, EPA decided to create a combined 2009/2010 requirement by increasing theRFSs 2010 bioma

parties toReg. 70643 (Nov. 21, 2008).

21Biorefineries for which construction began before EISAs enactment are not subject t

this requirement.



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while cellulosic biofuels must generally achieve at least a 60 percentreduction, regardless of when the biorefinery producing the fuel wasconstructed. 22

thee

iofuels. Subsequently, in late July

2009, four peer review analyses of key components of EPAs lifecycle

time, (2)

d,

ent, apart from greenhouse gas emissions, in orderfor a fuel to be eligible for consideration under the RFS. After 2022, EISA

rmation

promote the environmental sustainability of biofuels feedstockproduction, taking into consideration land use, habitat conservation, crop

EISA requires that EPA promulgate a regulation that determines thelifecycle greenhouse gas emissions of biofuels and delineates which areeligible for consideration under the RFS based on the specified reductionsand other statutory requirements. On May 26, 2009, EPA published aNotice of Proposed Rulemaking in theFederal Registerthat proposesregulatory structure to implement the RFS and methods for calculating thlifecycle greenhouse gas effects of b

analysis were completed: (1) methods and approaches to account forlifecycle greenhouse gas emissions from biofuels production overmodel linkages, (3) international agricultural greenhouse gas emissionsand factors, and (4) satellite imagery. The proposed rule, if promulgatewould adjust the required lifecycle greenhouse gas emissions reductionsfor advanced biofuels from at least a 50 percent reduction to 44 percent or40 percent in comparison with petroleum fuels.

Although the proposed rule includes an analysis of environmental andhealth impacts, EISA does not require EPA to determine a fuels lifecycleimpact on the environm

requires EPA, in coordination with DOE and USDA, to establish the RFSbased, in part, on the impact of the production and use of renewable fuelson the environment, including on air quality, wildlife habitat, water quality,and water supply. On May 5, 2009, the President announced the foof a Biofuels Interagency Working Group, co-chaired by the Secretary ofAgriculture, the Secretary of Energy, and the Administrator of EPA. Theworking group is tasked, in part, with identifying new policy options to

management practices, water efficiency and water quality, as well as

lifecycle assessments of greenhouse gas emissions.

ductions in lifecycle greenhouse gas emissions that each typeof renewable fuel must achieve, it also authorizes EPA to adjust the required reductions if

logies, and processes.

22While EISA specifies the re

the specified reduction is not commercially feasible for fuels made using a variety offeedstocks, techno



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To ensure that the RFS is met, EPA sets a blending standard each yearepresents the amount of biofuel that each refiner, importer, and certablenders of gas

r thatin

oline must use.23 In November 2008, EPA set the blendingstandard at 10.21 percent for 2009, which is designed to satisfy EISAs

ons

gao report: ethanol tax credit is unnecessary, costly

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